Build-Operate-Transfer in IT outsourcing explained
When it comes to IT, outsourcing is nothing new. Companies have been using it for years, for many reasons, but mainly because of a shortage of adequate local talent and the widely recognized possibility to save time and money that way.
Statistics suggest that IT outsourcing will become even more prevalent in the near future. With an expected annual growth rate of 8.20%, revenue in this market segment is projected to reach US$587.60bn by 2027.
On the other hand, companies increasingly recognize that this kind of delivery model comes with its own set of challenges. Fortunately, the Build-Operate-Transfer (BOT) model is a compelling attempt at addressing some of the fundamental issues businesses face when it comes to outsourcing and global expansion.
What is a Build-Operate-Transfer model?
Build-Operate-Transfer (BOT) is a project and service delivery method that derives from a public-private partnership model, initially used by public entities to facilitate large and complex infrastructure projects by partnering with private companies. In this type of BOT agreement, in exchange for building a publicly needed project, the company operates it for a predetermined concession period, after which project sponsors transfer the ownership to the public entity that commissioned the project.
However, over the years, the BOT model evolved beyond the public infrastructure project contracts. Today, the Build-Operate-Transfer contract is often utilized to facilitate partnerships between two private companies: a client and a BOT model vendor. In the tech industry context both the client and the service provider are usually private companies.
In this new type of a BOT project, the service provider establishes a captive center (usually in developing countries) and hires best local talent to support core business functions of the client company (Build stage).
Then, for a predetermined period, the BOT vendor becomes responsible for running the subsidiary company, including team management, service delivery, process optimization, and other day-to-day operational responsibilities (Operate stage).
After an agreed time, the service provider begins the transfer process, after which the client company becomes the sole owner of the captive center and assumes full control over its daily operations (Transfer stage).
BOT benefits overview
One of the key benefits of such a partnership is risk sharing and utilization of BOT vendor's knowledge of the local market, regulations, customs, recruitment expertise, and business practices. It is extremely advantageous when creating a remote IT hub, a software development center, or any other form of subsidiary company.
The vendor's local expertise makes BOT a reliable way of building dedicated IT teams in offshore locations. The challenges of recruiting the right talent, building the location strategy, and complying with the local regulations are all faced by the partner company.
The Build-Operate-Transfer model allows companies to achieve its strategic objectives, save costs and time, retain the ownership rights, and maintain the cultural fit across in-house and remote teams. It combines the advantages of outsourcing and insourcing and can be an excellent alternative to both building a new in-house team or working with an outsourcing company.
BOT method vs. traditional IT outsourcing
Traditionally, most IT outsourcing partnerships followed the Fee-for-Service Model (FFS). In this model, clients delegate tasks or projects to another company that performs managed services according to service-level agreements.
In other words, the IT service provider builds a team to provide an IT function in form of a service, and the client pays a predetermined fee every month.
While on the surface the Build-Operate-Transfer (BOT) model seems similar to other outsourcing models, there are major differences you should be aware of. The FFS model offers a great deal of flexibility from the vendor but, in many cases, results in lower levels of staff commitment.
Generally speaking, BOT projects involve another level of risk sharing, greater operational efficiency, easier team management, and better cultural fit of the remote team.
Consult the table below for a side-by-side comparison.
How does the BOT model preserve your control?
There is a number of ways to address the issue of control and oversight in projects based on the Build-Operate-Transfer (BOT) model. Experienced vendors will find a proper way to comply with your internal data and intellectual property concerns.
That being said, as with any other business arrangement, a BOT project is always based on a contract. To secure your best interests, a Build-Operate-Transfer contract should always include a list of key performance indicators, service delivery standards, a stage-by-stage timeline, and a contractual obligation for the service provider to provide regular performance reports.
Phases of the BOT model explained
The Build-Operate-Transfer model is named after the three different stages it contains: build phase, operate phase, and transfer phase.
Read this section for a close look at what happens in each stage of the BOT model and the responsibilities division between the client and service provider.
Phase 1: Build
BOT projects begin with the Build phase. This stage initiates when the client decides on the project scope, the conditions of the collaboration, and both parties sign a BOT contract. Such a contract is usually called a service level agreement (SLA). BOT contracts, or service-level agreements, should include a list of key performance indicators the partner company must meet, timelines, and responsibilities of the service provider.
Depending on the client's needs, the Build phase length can vary, but in the case of Maxima Consulting, it's usually from 1 to 3 months. The initial recruitment is easier with a long bench of prospective employees and established access to global talent, and our business team is highly proficient in making sure all legal obligations to setup a new company abroad are met.
Build stage - key elements
Establishing the rules of partnership
For the partnership to be successful, you need to establish a clear separation of concerns. The BOT model should be considered a framework that can and should be adapted to the client's company-specific needs.
Core staff recruitment
For any BOT model service provider, recruitment is a big part of their business. That means experience and better access to a broader talent pool, and, in some cases, better brand recognition in the region.
The vendor's knowledge of local employment laws and relocation regulations can drastically improve the speed of recruitment processes.
Office setup
This step includes finding the right location for your new captive center and infrastructure setup, (including Internet access, servers, workstations, and software).
Security policy
To reduce project risks at this stage and make sure the way that the new company operates won't become a vulnerability for the core business in the future, the BOT partner should adopt a strong access management and security policy.
Legal operations
Already experienced with establishing captive centers abroad, your BOT partner is responsible for all necessary legal actions, indluding founding the subsidiary company, applying for relevant tax breaks, accessing free-trade zones, and complying with the local labor code.
Training and knowledge sharing
The BOT model involves service provider and client organization working together to ensure that employees have all the access to the information they need to start working.
For example, in case of software development projects, both companies must cooperate to ensure the new team can qyuckly learn about the company culture, internal procedures, and everything else needed to start the development process.
Phase 2: Operate
After both the office and the team are ready, the subsidiary company starts operating. During this time, service delivery center reports to your partner company, who's also responsible for all HR issues and additional recruitment needs.
Operate stage - key elements
Additional hiring
While the core team must begin working as soon as possible to start bringing you the competitive advantage that you want, additional hiring is commenced during the operating stage. Especially for complex projects, including new technology adoption and artificial intelligence, the operate stage involves ongoing talent acquisition efforts.
Process optimization
Your BOT partner is responsible for constant optimization efforts to improve operational efficiency and tailor the service delivery to your company's unique operational needs.
Continued education
The remote employees know that they work for you and that they will formally transition to your company at a later date, so they're motivated to learn about your culture and continue the knowledge transfer throughout the project lifecycle.
Important decisions
In this stage of the partnership, the client company should transparently communicate its needs, designate priorities, and make final recruitment decisions.
Real business outcomes
Before handing out the company from a vendor to a parent company, at least a minimum viable product must be developed. It is possible to prolong the period of vendor ownership, but shortening it leads to increased financial and operational risks.
Phase 3: Transfer
During the transfer stage, the client gradually takes over the ownership of the subsidiary company. This is the last stage of a BOT model and it's generally pretty straightforward. Aside from knowledge transfer, both parties perform actions necessary to transfer the ownership of all assets as described in the initial agreement.
Transfer stage - key elements
Knowledge transfer
While good communication during previous BOT stages facilitates this process, your BOT service provider must ensure all information you need to successfully run the remote office from now on is in your possession.
Ownership transfer
Transferring the contracts and company ownership can be pretty straightforward with months of preparations on the vendor side to prepare the concession agreement.
Post-transfer support
When the BOT project ends, the last thing to do is decide on the scope of future collaboration. The transfer phase is rarely synonymous with the end of a business relationship, as BOT providers often provide many other managed services, including HR and recruitment.
Examples of successful BOT projects
Maxima Consulting has supported businesses in their IT needs, including enterprise software development, infrastructure & operations, and information risk management, since 1993.
We successfully completed a number of Build-Operate-Transfer contacts, including a Security Administration project for one of our clients, a global financial institution from the United States. You can read the whole success story here.
Pros & cons of the Build-Operate-Transfer model in IT
Although Build-Operate-Transfer merits outweigh its flaws for most companies, it's important to understand what challenges may arise and be prepared to tackle them. The table below provides a quick overview of both advantages and disadvantages of the Build-Operate-Transfer (BOT) model.
Top 8 benefits of Build-Operate-Transfer in IT services
1. Access to a larger talent pool
Your BOT partner company already has access to broad talent pools and a specialized talent acquisition team experienced in venturing to new markets. If your business isn't known in your desired location yet, your partner's brand may be more recognizable than yours, resulting in more candidates.
2. Bridging the skills gap
When it comes to the IT skills available on the market, location really matters. It's especially true for legacy skills crucial for financial institutions and government agencies.
From our experience, candidates with impressive skill sets are easier to find offshore, for example when outsourcing to India or recruiting in Poland. Partially because of their lower salary expectations, partially because they understand niche skills are essential for many foreign clients, who happen to pay better than local companies.
3. Short time to value
Your BOT service provider is equipped with local know-how needed to establish a fully operational facility fast. In many cases, the core of your new IT infrastructure or software development team can start working within a month after signing the contract.
Additionally, employees with prospects of being hired by you directly in the future often are motivated to show their value to your company from day one, resulting in improving customer satisfaction levels.
4. Risk reduction
In the BOT model, clear separation of responsibilities between client and vendor companies leads to them sharing operational and financial risks. Typically, all risks related to setting up the company in a foreign country, assuring compliance with local law, hiring, HR, and payroll are delegated to the partner company.
5. Combine savings with ownership
One of the most important incentives to consider any form of outsourcing is, of course, saving money. Build-Operate-Transfer can be as cost-effective as other outsourcing methods, but it comes with an ultimate banafit of full ownership.
As a result, since day one of the build phase to the end of the transfer phase, the team you work with is built to work specifically for you. The BOT approach guarantees that all employees work in accordance with your processes, and the results of their work belong to you.
6. Access to local know-how
Going to new markets necessitates learning about local regulations, customs, hiring practices, candidate expectations, and possible pitfalls. Working with a specialized BOT service provider allows you to kick off the work in no time and make sure all day-to-day operations are running smoothly.
7. Scalability and flexibility
The Build-Operate-Transfer model gives the partnership a structure, but your partner company can always customize the agreement to suit your company's unique needs.
8. Embracing the company culture
Although the remote employees have contracts with your vendor, they know from day one you are their future employer. Your partner company is responsible for introducing the team to your company's culture, processes, and rules.
Key considerations concerning BOT models
1. A reliable partner is a must
It may be as plain as day, but it can't be stressed enough. Choosing the right service provider is simply crucial for the success of your BOT project. You need a trustworthy partner company who can prove their expertise and experience in operational and digital transformation projects.
2. Not for every project
The Build-Operate-Transfer model is versatile enough to be used in many tech-related scenarios, from IT infrastructure projects to software development and quality assurance to cybersecurity, but it's not a one-fits-all solution. Before making a decision, it's best to look at the alternatives (like managed services) and examine your priorities.
Consider the size and complexity of the project, your budget, data security, and intellectual property issues.
3. Communication is essential
Nothing is more important than clear and regular communication, whether in the BOT model, or in any other form of service delivery. At the beginning of the process, you should devote a substantial amount of time to oversight and guidance.
Before choosing a location for your new IT support or software development team, consider possible difficulties derived from living in different time zones and cultural or language differences. Ask your partner company about their approach to diversity and inclusion.
Typical Build-Operate-Transfer timeline
The BOT model is a versatile method of partnership, so its timeline can vary depending on the project needs. Think of the provided time brackets as guidelines and consult your BOT service provider for more accurate timetables.
Months 1-3: Build phase
Typically, establishing a company and hiring the core team takes up from one to three months. The build phase also involves securing the office space and needed infrastructure. Projects with greater scope may need additional time to achieve operational effectiveness and initiate revenue generation.
Months 4-16+: Operate phase
The operate phase takes anywhere between 12 to 24 months (and, in some cases, even more). The project period depends on the size of the tech team to assemble and complexity of the product or service to deliver.
This phase can typically be prolonged if the client company wishes to (for any reason). In some cases, stated in the BOT agreement, it could be also shortened.
Month 17+: Transfer phase
The transfer phase shouldn't take more time than one to three months, as it's prepared in advance. This stage ends the Build-Operate-Transfer timeline, but many businesses decide to continue a partnership with the service provider.
For example, your BOT model provider probably offers HR and recruitment also in the form of managed services.
Build-Operate-Transfer Variants
The Build-Operate-Transfer concept is versatile enough to enjoy its benefits in many different ways. Variants of BOT models exist to accommodate the specific needs of various businesses.
For example, BOT 2.0. is the most recognizable variation on the BOT framework used in IT solutions. With BOT 2.0, your BOT service provider still supports you in establishing a subsidiary company in your target area, recruitment, and management, but you own the company from day one. This results in partner comapny's limited involvement, including the possibility of giving them no access to your data and intellectual property at all.
Important factors to consider before deciding on the BOT model
Now that you know what Build-Operate-Transfer is, how it typically works, and what are the advantages and disadvantages of choosing the BOT model for your IT requirements, you probably have a good idea if it's something right for your company or not.
Nevertheless, making a decision on utilizing the BOT model will be easier with this list of key points to consider.
1. Project management basics
What is the scope of the project? How big and complex is it? What is your expected time-to-market? How fast do you need the results?
2. Requirements assessment
What skills and competencies do you need to make your project happen? What part of those do you already have internally? What are skills your existing teams lack?
3. Risk sharing needs
How much risk can your organization handle in relation to this project? Is sharing the risk with your vendor a strong argument for your project's approval?
4. Location strategy
How important is it for the vendor to be close to your company, both geographically and culturally? Typically, offshoring is more cost-effective, but the employees there work different hours and have different work habits, while nearshoring is more expensive but offers a closer cultural fit and similar working hours.
5. Security and compliance
Consider data security and compliance with regulations regarding data in all locations. What are the laws regarding data protection in the desired country of operation?
6. Service provider flexibility and scalability
How well-defined is the project? Do you expect a lot of changes or corrections in the future? How flexible should the vendor be to comply with your expectations?
7. Project finances
How much should it cost? Estimate how much your company would pay for setting up the project in-house and use the number as a point of reference when negotiating a deal with your chosen vendor.
8. Cultural fit
How important is it for the employees involved with this project to feel like a part of your company? How important is it for them to understand and comply with your company culture, organizational approach, and communication style?
Make your digital strategy actionable with BOT
Partnerships based on the Build-Operate-Transfer model are a great way to bypass the global IT talent shortage we're experiencing. With a reliable and experienced partner, a BOT model can be a great way of acessing high-quality services quickly and retaining ownership and control over projects.
Maxima Consulting has supported businesses in their IT needs since 1993. With offices on three continents, a long bench of talented IT consultants, and numerous successful partnerships, we'll be more than happy to work on a Build-Operate-Transfer project with you. You can easily contact us by sending a message or scheduling an online meeting.
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